October 2019 Market Commentary

“There are three kinds of lies: lies, damned lies, and statistics.”

Mark Twain “Chapters from My Autobiography” (1907)


The US stock market as measured by the S&P 500 is up year to date since the first of the year by 21.2%. Good news. The stock market is up year over year by 4.00%. Not such good news. The stock market in the past six months is up by 4.00%. Boring news. Lest we forget, the stock market declined by 17 ½% in the three months prior to Christmas Eve 2018 so most of the 2019 return reflects a recovery from the prior late 2018 market decline.

Heading into October bears had a surfeit of reasons to be, well, bearish. Prospects for the settlement of the trade dispute between the US and China had dimmed. Corporate earnings were expected to reflect the slowing of US and global economic growth rates, the ISM Manufacturing report had dropped to its lowest level since the recovery from the Global Financial Crisis and then there was the matter of the inverted yield curve with its reportedly uncanny ability to predict the onset of economic recessions.

Equity Market Commentary - 2019 Recession - Heritage Wealth Management

Interestingly, despite the (or perhaps more accurately because of) this bearish backdrop, the S&P made a new high on the 28th and was positive 3.4% for the month. Perhaps more interestingly still the Consumer Confidence Survey revealed that slightly more US consumers, 32.2%, expected the stock market to be lower in twelve months than expected it to be higher, 31.7%, a phenomenon that has occurred only six times in the past thirty years.

Something else may be occurring in the financial markets that may be offering bulls a firm foundation upon which to rest their case. Investors in the US have allowed the return of US equities, in particular the large-cap tech names, to obscure the reality that post Global Financial Crisis global equity market investors have found opportunities for significant profits to be less than an equal opportunity experience with ten-year annual rates of return in foreign developed markets averaging 5.4% and that of emerging markets 3.1%. Since August 23rd the S&P has risen 6.5% but foreign developed markets are up 8.8% and emerging markets 9%. This isn’t sufficient information to confirm that a reversal of fortune awaits domestic and foreign equity markets but it’s worth keeping an eye on.

Equity market bears base their pessimism on the economy. The US economy hasn’t been in recession for ten years so we must be due for one. The Federal Reserve will continue to lower interest rates and interest rates in the bond market will remain low and possibly even go negative. Inflation is likely to be a no show for years to come but its opposite, deflation, is something we need to take care to avoid. This is consensus opinion but a better wager to make may be a contrary one.

Recessions occur to correct excesses in the marketplace be they financial or economic. Where do these excesses currently exist? What if central banks, both US and foreign, after ceaselessly shoveling additional forms of stimulus to light the fires of economic activity, succeed beyond levels of their current reckoning and the global economy is about to enter into a multi-year period of accelerating economic growth rates? Debt servicing costs for US consumers are at their lowest levels in forty-five years. US unemployment levels in the US are plumbing historic lows and wage rates, especially for those compensated at lower levels, are increasing at an accelerating rate as are a variety of measures of consumer spending that represent 70% of the US economy.

All things being equal I’d rather be an optimist than a pessimist but better still I’d like to wager on increasingly good news as a guidepost towards increasing investment returns in the financial markets. How about you?


Mark H. Tekamp

November 6, 2019

Summer Daze – 2nd Quarter Market Commentary

Summer Daze

“Roll out those lazy, hazy crazy days of summer

You’ll wish that summer could always be here”

Nat King Cole – Those Lazy, Hazy Crazy Days of Summer

Heritage Wealth Management Group - Summer Q2 Market Commentary - Mark Tekamp

A recent newspaper headline was “June’s stock market returns best since 1955”. Those inclined to look back a bit further in time might recall a headline of several months ago; “First quarter marks best start to year since 1995.” Not wishing to dash cold water on what is meant to be a cheery message I do though feel it is appropriate that we be reminded that the first quarter’s 13.07% advance followed the prior quarter’s decline of 13.97% and June’s 6.89% advance followed May’s 6.58% decline. (All numbers based upon the return of the S&P 500). Most investors are looking at year over year returns through the end of June in the low to mid single digits confirming that the market over the past twelve months is better represented by a  teeter totter than a steadily ascending trendline.

Meanwhile, many observers of the US economy are forecasting the imminent demise of the economic recovery. One day’s headlines capture the mood. “U.S. Outlook: Is a Recession Coming, and What Could Trigger It?” “Anatomy of a Recession Webcast: Q3 Update”. “How to Prepare for the Next Recession: 9 Things You Need to Know”. The New York Times prepared to celebrate the tenth anniversary of growth without a recession, a record that has been exceeded only once previously in our national history, with a headline “Happy Anniversary, Economy! (Maybe. Sort of. On Second Thought…)”. The most frequently cited reason for the imminence of recession is  age. It’s been a long time since we had a recession so therefore it must be almost time for us to have one.

Bears on the prowl for bad economic news are not entirely lacking in evidence to confirm their suspicions. The manufacturing portion of our economy has slowed from its previously robust levels of growth. Global growth rates have clearly declined. China US trade tensions and the possibility of bad behavior by Iran and its impact on oil prices are wild cards in the deck of global economic growth prospects.

For this observer though, there is much that is happening that is positive but often overlooked. Central banks in Europe, China and the US are now inclined to ease financial conditions, a sea shift from twelve months ago. Real final sales to domestic purchasers in the US, one of the best measures of consumer demand that represents two-thirds of the US economy, grew 1.6% in the first quarter but is expected to increase to 2.8% in the second. The imbalances that are present prior to economic recession are absent. Testimony to this is the average age of residential housing in this country having increased by five years since 2006, the largest increase since the 1930’s, indicating that cyclical demand in our economy remains relatively depressed and therefore offering substantial potential to support future growth rates. Finally, expectations for the rate of growth in corporate earnings have declined increasing the likelihood of positive surprises.

A likely winning wager is that for at least the remainder of this year and the one to follow both the economy and financial markets will be deliverers of significant dosages of good news. Smile, be happy and enjoy the season.

Mark H. Tekamp

Windows & Mirrors

With the benefit of hindsight (the mirror portion of our title) the near 20% stock market decline from October 3rd through December 24th of last year is something that might have been anticipated. The combination of a 25% increase in oil prices and the yield on the ten year US Treasury bond rising from 2.50% to 3.20% through the first three quarters of the year married to a notable slowing in both US and global economic growth rates tossed a dose of reality like a bucket of cold water onto a scenario that had grown a bit too rosy and a resulting disconnect between hope and reality.

For investors weighted 60% in equities and 40% in fixed income the 4th quarter stock market decline of 16.7% left them with portfolio losses for the quarter of approximately 8.50%. Fortunately Santa, while delivering gifts to put under our trees, also provided investors a stock market rally starting on Christmas Eve and which continued throughout the first quarter of this year and continues still. The market decline of the 4th quarter was the worst in over seven years. The market recovery in the 1st quarter was the best in almost ten years. Investors may have found themselves recalling Dicken’s quote from “The Tale of Two Cities” (“It was the best of times, it was the worst of times…”) or perhaps somewhat more evocatively they may felt themselves possessed of Jody Foster’s spinning head in “The Exorcist”. So as we step up to the window and gaze ahead through the remainder of the year what do we see?

First let’s affix our gaze a bit more firmly upon the 1st quarter. The market (we’ll be referring to the S&P 500 index throughout this commentary) high of last year was on September 20th when it closed at 2930.75. The market close on Friday, April 12th was 2907.41 so we have yet to recoup the entirety of the market decline. The 60% equity & 40% fixed income portfolio returned 8.50%, an amount almost identical to the 4th quarter decline leaving most investors very close to break even for the past two quarters and approximately 3% positive year over year. While the stock market has spent the past six months creating and filling the holes it created in investor’s portfolios corporate earnings have continued to grow albeit at a slower rate. The market is now valued at 17.4 times earnings versus a thirty year average of 16.9 leaving bubble hunting bears with the need to look elsewhere for potential sources of woe and mayhem.

Perhaps we’ll want to title the next commentary “The J Curve” (as in Jay Powell, the chairman of the Federal Reserve) with the letter J tilted at a 45 degree angle and representing the prospective future course of the S&P through year end. The curved portion of the letter represents the remainder of the recovery from the prior decline and the upward sloping straight line of the letter represents the course of the market as it finds its way to new highs through the remainder of the year. For the remainder of this year at least Jay Powell will not dare to utter a single note of caution about the prospect of future risks of inflation or the possibility of interest rates being too low. Like Switzerland the United States Federal Reserve has wandered off the playing field, declared itself to be neutral and it will allow the US economy to grow as it will. Already there is data showing that economic growth rates are preparing to accelerate. Spring has arrived and warmer and better days lie before us. The party shan’t last forever but the beer is cold and the band is playing so what’s not to like?

Market Commentary


The stock market’s 20% + return in 2017 led investors to approach 2018 feeling optimistic about the probability of the continuance of the good times. The market’s 10% return in the first three weeks of January last year seemed to confirm the likelihood of the fulfillment of that hope. Alas the market gave that all back and then some leaving most investors underwater some fraction of a percent by the end of March. The second quarter saw a modest recovery with most investors near breakeven at mid year. The third quarter saw the restoration of good times with returns of 3 to 4%. October the market rolled back over with many investors experiencing declines of near 5% for the month. November the market attempted to regain its footing with modestly positive returns but then December repeated the negativity of October creating additional losses of near 5% resulting in declines of 8 to 9% for the quarter and overall declines of 6 to 7% for the year. Note these are portfolio returns with weightings of 60% stock market and 40% bonds and cash. Investors with greater exposure to the stock market would have experienced somewhat more negative returns.

If we were to end our story here it would be a tale of moderate woe but the recovery in the stock market since Christmas has seen the market recover approximately half of its almost 20% decline from its September peak to its low of the year on Christmas Eve giving the average investor back half of their 2018 losses through Friday, January 17. So do we dare to hope that we need not fear the return of the market negativity we experienced a month ago or would it be wiser to hold onto our fears and forego our hopes?

While forecasting the future is an exercise entered into with the utmost of caution that should not preclude our grasping hold of what we know and using that to make a reasonably educated prediction of what 2019 may be offering investors. First the market decline of late last year was the market reacting to the probability of a significant slowing in the growth of corporate earnings through the first half of the year resulting from a slowing of the rate of economic growth. While viewed in isolation that would scarcely be viewed as good news it will likely create a policy response that will likely lead to a notable rebound in the stock market. The Federal Reserve having been unnerved by the market volatility accompanying its most recent interest rate increase will likely cease any additional increases through the first half of the year and possibly for its entirety. The trade dispute with China has already led that country to reopen the spigots of using borrowed money to build out infrastructure. The US political system with its divided congress defies hopes of building bridges to bipartisan understanding but a divided congress will nonetheless likely agree on the need to repair this countries bridges, airports and other parts of our infrastructure resulting in additional stimulus to our economy. All of these policy responses and others as well will lead to a rebound in economic growth rates in the second half of this year both in the US and globally. This is likely what the stock market is currently celebrating.

Investors should be encouraged to smile as they contemplate what this year has on offer. We have issues that will need to be addressed in future years but for 2019 its full pedal to the metal and investors should celebrate the reality that for this year at least they are an interest group whose interests the government is actively supporting.


Mark H. Tekamp

What Was That?

Yesterday (Wednesday) the US stock market (as measured by the Dow Jones Industrial Average) was seemingly on its way to a 200 to 400 point decline when apparently the bulls left early for the day and the bears were left without anyone to sell to driving the market down 800 points at the market’s close.

A few of the more honest commentators on the market offered “I don’t know” to explain the decline but those commentators without the luxury of professing humility as a justification for their employment were left offering “rising interest rates”, “pending recession”, “tariffs” and “rising oil prices” as among the most popular of their explanations.

3% market declines are uncommon if not unusual. Since 1952 the market has experienced declines of that amount or more ninety-eight times, twenty times since the bear market bottom of March 8, 2009 and three times this year. In the fourteen instances of market declines of that severity that have occurred since 1952 on Wednesday the market has on average recovered roughly half of the one day decline in the following two trading days perhaps leaving us grateful that if such madness must occur at least it happened mid-week.

Portfolio profits year to date have been mired in low to middle single digits so it is understandable that something so long sought should now be so sorely missed. The second quarter covered the first quarter’s deficit leaving most investors near breakeven at the year’s midpoint. The third quarter continued where the second left off leaving those in love with larger numbers feeling reasonably hopeful about the year. Since the start of October the market is down 5% leaving it up 4% for the year but foreign market declines and modest declines in bond values leave most investors just about where they were when the year started. So what now?

Market declines are like crime scenes. They do leave clues if one knows where to look for them so assuming the role of Inspector Renault from “Casablanca” let’s trot out a number of the usual suspects.

First bond yields. They are rising albeit modestly (4/5 of 1% for the ten year US Treasury since the beginning of the year) but NOT because of rising inflationary expectations but rather because of increased optimism about future economic growth rates. The Federal Funds Rate, the rate which recently the Federal Reserve has been increasing at most of its quarterly meetings, is now equal to the inflation rate meaning that borrowers are no longer being paid to borrow short term but they are still able to borrow free on an inflation adjusted basis.

Second Credit Default Swap Spreads. This is the cost of insuring corporate debt against the risk of default. When the markets become concerned about the prospects of declining corporate earnings the rates typically rise. They aren’t. Neither those for investment grade or high yield corporate bonds. At fifty basis points (1/2 of 1%) rates on investment grade bonds are at their lows since the Global Financial Crisis of 2008-2009.

Third the value of the US Dollar. At its current level it is at the midpoint of the 10% range between its highs and lows for the past five years. While up roughly 5% in the past year its down 5% from its level of three years ago. If the Federal Reserve’s interest rate increases were causing significant problems for the remainder of the world one would expect to see much more dramatic changes in the value of our currency. We aren’t and so it isn’t.

Fourth. The price of gold and the return on 5 year TIPS (treasury inflation protected securities). Gold for the past two years has been trading within a 10% range and has recently declined several percentage points. TIPS yields have migrated from zero to 1% over that same span of time. Both indicate that the market’s appetite for risk has been modestly increasing. Gold prices typically rise when the real economy is viewed as containing within itself an increasing degree of risk. And it isn’t. TIPS yields are expected to decline when the markets seek safety at the expense of return. That they are rising reveals an increased appetite for risk on the part of the financial markets.

So there we have it. Perhaps you are left though still wondering why the market fell. I’ll offer an explanation though briefly so as to not overstay my visit. China. Not tariffs. That is a symptom rather than a cause. China for years has been a margin play and like all margin plays it works well as long as the return on the money being borrowed exceeds its cost. When it doesn’t, and it hasn’t in all likelihood since the Global Financial Crisis, the system goes in reverse. China is yesterday’s growth story. Not tomorrows. But this is a story for another day.


Mark H. Tekamp

Time To Wake Up?

First there is watching grass grow. Then there is watching paint dry. But right behind is the stock market.

Ten years ago, in 2008, you may have chosen not to follow your investments due to one month’s bad news being followed by the next ones even worse. By way of contrast in the past four months you may have chosen to not follow your investments because…well, why bother? Each month ended pretty much where the month before ended. All this by way of reminder that the journey of an investor contains times of real joy and occasional times of fear but this current time of real boredom is well… boring.

First, allow me to review the perambulations of the market year to date after which I’ll connect several dots and create a scenario that I believe will be worth waking up for. Remember 2017? Every month the market went up. The amount varied but the direction seemingly was inexorably upwards. The first three weeks of this year was more of the same with the market up nearly 7% .Then the floor fell out from under it and by early March the market had fallen 10% though the subsequent modest recovery left it at break even for the first three months of the year. Since that time the market has gone back and forth like a hypnotist’s watch in front of your eyes first up a little, then down a little but frustratingly returning back to where it began the year. We’ll agree that back and forth is a great deal better than down and out but if you’ll allow me to explain the recent past I do believe that it will provide us a road map of where the remainder of this year’s journey is likely to take us.

Imagine a balloon. You blow into it and it fills up with air. You blow into it still more and its surface becomes tense with the internal pressure. That is a description of the stock market entering into this year. Normal markets experience an ebb and a flow where advances are followed by occasional and hopefully more modest declines allowing the market to rise while releasing its internal tension. The 2017 market was unusual in the absence of the usual. The January 2018 stock market rise was a happening looking for an accident and the market went down because of the imbalance created by investors enjoying significant returns while having experienced little in the way of risk. The 10% decline restored that balance and by early April the market had acquired an appearance somewhat similar to that of last year with the economy delivering the sunny news beloved of stock market bulls. That recovery was preempted a month ago by fears of tariff wars and it was those fears that drew the market down to low single digits by the end of June.

Focusing on the overall market though obscures a level of activity within it that has been hidden by the seemingly aimless meanderings of the various indices that tend to capture the headlines. Large cap growth is up 11.2% for the year to date. Small cap stocks are up 10%. For a year that is barely past half time those aren’t bad numbers and actually rival last years. But large cap value stocks are only breaking even and the seemingly permanently underperforming foreign markets are down overall near 3%. So you put the pieces together and you have overall stock market returns of plus 3% year to date through the end of June proving it’s hard to win a game when only half your players are participating. Psst…allow me to share a small secret with you though. The market is up 3 ½% since July 1st. This bull never died and like many investors was only sleeping. But the bull has awoken and this is likely to be a show you wouldn’t want to miss.

As I’ve shared with many of you in the past it isn’t good news or bad news that drives markets but rather whether the news is better or worse than the markets expected it to be so let’s spend a little time discussing the average investor’s expectations of the market. Everyone and their mother by now knows that the economy is doing quite well. Most didn’t expect it to do this well and most expect that this is likely as good as it gets. In other words, deceleration while still heading in a positive direction. That is what the market expects and that is what it is priced for. That is perception. What about reality? How about an economy that isn’t as good as it gets but rather one that is good and getting better? What if we have an economy that is not only growing near 4% currently but an economy that grows at that rate or even faster for the next four to six quarters? If that is reality and reality is far more positive than expectations then the market may well be poised to experience a “positive shock” meaning that monitoring your investment returns through the end of the year may well qualify as a spectator sport worth buying a ticket for.


Mark H. Tekamp

Bigger Than You Think

Many of our fellow citizens and this may include yourself, are rubbing their temples to encourage blood flow to minds benumbed by the events of this past Tuesday. Please allow me to share a few thoughts that you may find helpful in establishing your expectations for the financial markets in the weeks and months ahead.

First, please understand that these words are “value-free” in that there is no intent to weight upon the merits of the choice the American people have taken advantage of their democratic rights to exercise.

Not a few of you reading this are both deeply disappointed and concerned about the merits, political and personal, of the next occupant of the oval office. For others, it is a time of having your faith in the American people restored and the anticipation of a time of national renewal.

The intent of these words is less ambitious but hopefully more meaningful for those of you who are now left wondering about the impact of this election upon the economy and financial markets. What follows is written in the spirit of believing that we actually know a great deal more than we might suspect and that it is, therefore, possible to create expectations that will be useful in approaching the topic of investing.

First, some numbers. Seventy-two, thirty-six and thirty-six and eight. It has been seventy-two years since 1944, the election of FDR to his fourth term and the succession to the presidency by Harry Truman one year later. Interestingly, since that time Democrats and Republicans have held the presidency thirty-six years each. The more interesting number I would argue is eight. Eisenhower, Nixon, Bush #1 and Bush #2 were presidencies that represented more slowly moving imitations of Truman, Kennedy, LBJ, Carter, Clinton, and Obama with both Democratic and Republican presidencies leading to a seemingly inexorable migration of the control of the nation’s economic and financial resources towards Washington, DC. Only the eight years of the Reagan presidency represented a real effort to alter the nation’s course but if it was a true revolution it was one that was subsequently lost.

Seeking an approximate parallel to the 2016 election is an exercise in futility because there isn’t one.

Never before, in all of the years since the founding of this country, has a president entered office owing so little to so many. Trump isn’t a creation of the “system” as much as the voter’s rejection of it. Wall Street and large corporation donations were not Trump’s to claim but rather his opponents. For sixty-four of the past seventy-two years the American presidency has been in status quo mode seemingly always traveling in the same direction and only with its rate of speed varying. So…are we reversing course or changing direction?

The answer to that question is not difficult to divine. Trump is not, as some would argue Reagan was, a reactionary seeking to recapture a mythical golden past but rather a radical in the sense of his owing nothing to this nation’s political elites and what many of his voters view as their game of musical chairs.

The president-elect though is perhaps best viewed as a utilitarian. The presidency is an office and there is little doubt that Trump believes himself as the one best suited to occupy it. Interestingly Trump, like Reagan, is more of an actor than a businessman always looking for a larger stage and now occupies the largest stage of all. And so…what now?

Unlike many candidates for this nation’s highest office, it may be wise to assume that Trump actually meant much of what he said while on the campaign trail. Many commentators have suggested that Trump’s politics are the politics of resentment with his attitudes towards immigration and foreign trade being perhaps the best known of his positions but I would suggest that this misses a large part of the bigger picture. Arguments about the causes of the Global Financial Crisis of 2008-2009 and the sources of the subdued rates of economic growth experienced since then are largely irrelevant. What is relevant is the importance of not underestimating Trump’s commitment to aggressively pursue policies that he believes will be contributory towards stimulating economic growth rates as well as removing those policies which he believes inhibit it. And he has a united congress prepared to pass what the new president proposes.

To conclude. The financial markets are essentially amoral inherently believing that whatever contributes towards economic growth is good. Much of what you may care very deeply about and believe makes this a better country is of little to no concern to the S&P or the bond market. Trump believes very deeply in two things at least. Himself and restoring higher economic growth rates to this country. As an investor, I encourage you to believe that at least in terms of the financial markets, as a former president once said in one of his television advertisements, “it’s morning in America.”

Time To Elevate Our Gaze

For the past eight years anyone with a relationship with the economy and the financial markets of the United States, in other words all of us, have felt themselves cast in the role of swimmers striving to increase the distance between the state of their economic lives and the shipwreck of the Global Financial Crisis of 2007-2009 when the global financial system had listed badly, taken on serious amounts of salt water and resembling much too close for comfort a system sinking towards the bottom of the sea. Those born during the market’s lows of March 2009 will be entering second grade this autumn but for many it all feels very much like yesterday.

Time increases the distance but we still cast glances over our temporal shoulders and having been captured by the traumas of the past it becomes our point of reference for how we perceive both present and future. Members of the “chattering classes” shout inflammatory words through megaphones like so many Old Testament prophets forecasting doom to those committing the financial folly of seeking a return much above that of zero. Confusing information for wisdom we go to sleep at night not counting sheep but rather the specter of lower oil prices, deflation, China, zero and negative interest rates, Brexit. We don’t know what any of it means and often it’s our not knowing that acts as fuel that feeds our fears.

Fortunately, every journey through time eventually leads to a future that is distinctly different from that of the years preceding it and so we’re left without the need to wrestle with the probability of the eventuality but only the matter of its timing. No doubt, with our gaze firmly affixed to our rear view mirrors, we’ll miss significant amounts of accumulating evidence of a notable change in the landscape; that it isn’t gravel beneath our tires any longer and those sure don’t look like pine trees.

For those who might begrudge the cheery demeanor of the thoughts which follow the writer will confess to having “cherry picked” the items to substantiate his case for optimism but hopefully the possibility of a notable change in the economic weather for the better might be found by the reader to be an enticing as well as a compelling one. First though the intrusion of some contrary evidence that while much may be getting better all is still not well. US Treasury rates making new lows are mystifying.

And it would be a good thing if the Italian banking system did not so closely resemble a deflating “ciabatta”. Copper. What about it? The most economically sensitive of all metals prices continues to be seemingly content to be merely an observer at the festival of economic good fortune. Still, it is better to be early to a correct conclusion than to be late even when accompanied by substantiating evidence of greater weight.

The stock market stalled out about two years ago and since then investors have been treated like observers of a dance; two steps to the left, two to the right but somehow while always moving nothing much ever changing. Economic growth had slowed. The forces of economic recovery that began in 2009 clearly had abated. Corporate earnings growth diminished and then disappeared. At least in this instance the market has made a lot of sense though precious few dollars. But then, earlier this year, things began to change, most notably the prices of those things whose existence in this world substantially precedes that of bipeds like us seeking to create wealth without the unfortunate necessity of actually having to expend physical effort in the obtaining of it. Metals, coal, natural gas, oil, gold and silver. Stuff being sold on television by performers lacking meaningful work since the twentieth century.

Numbers in the teens and twenties began to pop up on spreadsheets denoting returns for A MONTH.

The tone of the economic news began to change. With greater frequency some of the data was coming in revealing an economy displaying the rosy complexion of increasingly robust good health. April’s increase in personal consumption expenditures, excluding a month in 2009 supported by the “cash for clunkers” program, was the strongest in any month since 2005. In June the twelve month average of housing starts reached the highest level since 2008. On June 28th the 1st quarter GDP number was revised upwards from 0.5 to 1.1%. Also in June the Chicago PMI (Purchasing Managers Index) reached a six month rate of increase that had been exceeded only eight other times in the past fifty years and seven of those times were when the economy WAS COMING OUT OF RECESSION. On July 1st claims for unemployment compensation came in below 300,000 for the sixty-ninth consecutive month, the longest stretch in more than forty years. On July 6th the ISM (Institute of Supply Management) NonManufacturing Index rose to its highest level since February 2008. On July 8th a broadly based unemployment number including discouraged workers and part timers seeking full time employment dropped to its lowest level since April 2008. Finally, the ISM Purchasing Managers Index for Manufacturing came in with a figure that may be forecasting an acceleration of Real (inflation adjusted) GDP growth to 3.2% which, if realized, would represent the highest rate of economic growth post 20082009.

So there it is. It’s still early days but quite possibly the financial markets and the economic data are offering us the answer to the “when” question posed earlier. NOW.


Mark H. Tekamp


Like a patron of the local pub no doubt financial markets would have much preferred to pass around the hat to come up with the money to buy another round but wiser heads have prevailed and someone has called a cab (or is it Uber) to bring a situation that has already lasted much too long to its inevitable end.

Capitalism hasn’t enjoyed a particularly good decade reputationally but it has resulted in a historically unprecedented level of global wealth and if you are an average citizen on planet Earth the odds are significant that you’ve never had it so good. Thus it is passingly ironic that a system that ultimately depends upon the liberty of those who operate within it should be critical of a people who have arguably done more than any other to create an environment conducive to the exercise human freedom to have voted in pursuit of it. While in the short term, perhaps a week or so, the markets are possibly going to assume the worst they will, as markets always do, come to celebrate what they will come to view as a provider of solutions to long standing economic problems.

Pursuing brevity while also attempting to shed light on a widely misunderstood issue can be challenging but here we go. The Economic Union (EU) has always been like the suitor asking for the first date while slipping a wedding ring into their side pocket. Always asking for little it has ended up with quite a lot but unfortunately without the permission of those whom it seeks to govern. While possessing an elected parliament the EU is essentially a bureaucratic state but unlike our own nation unconstrained by an electorate possessing the right to vote upon the rules which it is required to live under. Interestingly the EU was relatively popular in the United Kingdom (England, Wales, Scotland and Northern Island. Britain is incorrect as it excludes Northern Ireland which also voted) enjoying “only” a four point popularity deficit (44/48). In France it’s 38/61 and even in Germany, arguably the greatest beneficiary of its membership in the EU, it’s only 50/48.

The European Union has 28 members and in terms of its global economic footprint it does matter and actually a great deal with an economy of $18.4 trillion versus the US’s $17.4 trillion (2014 #’s). 19 of the 28 countries share the Euro as their currency with 6 of the other 9 committed to its future adoption and with the UK, Sweden and Denmark having been the permanent holdouts. In Europe as a whole only Norway, Switzerland, Iceland and Russia along with various remnant states of the former Yugoslovia precede the UK as non-members of the EU.

An uncomfortable fact underlying the birth of the Euro on January 1, 1999 is that those countries who have been permitted to vote upon its adoption, Denmark, Sweden and the United Kingdom, have chosen to reject it resulting in the rather undemocratic phenomenon of the only countries actually using the Euro exactly mirroring the same universe of countries whose citizens have not been permitted to vote on whether to adopt it with its accompanying dubious privilege of surrendering the use of their own domestic currencies.
It is the Euro which has done more than anything else to give the EU a major “hair cut” to its popularity.
Those countries adopting the Euro found their economies locked into a monetary relationship with a variety of countries with economies possessing very different characteristics from their own and.
without the ability to address those imbalances through adjustments in the relative values of their respective currencies. Germany was able to surrender its D Mark at terms very favorable to its ability to price its exports at relatively low prices. For Spain with its Pesetas, Italy with its Lira and many other countries the terms would result in their being sentenced to years of economic purgatory. As Europe’s largest economy much of Germany’s growth resulted from very large foreign trade surpluses. The problem for much of the rest of the Eurozone was that Germany’s surpluses were required to be their deficits. To sustain the growth rate of their economies they were required to take on increasing amounts of debt until at the time of the Global Financial crisis of 2008-2009 they hit the outer bound of their debt limits and the credit markets were closed to them resulting in a deep economic recession and very high levels of unemployment.

The criticism of Greece and other predominantly southern European countries has been often couched in moral terms; thrifty Germans and spend thrift Italians, Greeks, Spaniards etc. when in reality it is nothing of the sort. Germany cannot necessarily be blamed for pursuing its own national economic interests but the bill has been paid more often than not by the other members of the Eurozone. It is the pursuit of its interests without a willingness to assume an appropriate share of its responsibilities that has led Germany and other surplus countries to be primarily responsible for the extraordinarily dysfunctional system that the Eurozone has become.

By voting to leave the Eurozone the UK has turned on the lights at the end of a very bad movie while reminding other countries that democracy and freedom must be the principals upon which any political system that hopes to endure must be based. The UK will be better off on the outside than in. Its tradition and its destiny of being an economy based upon freedom with its facing the Atlantic Ocean and open to the world will lead in the not too far distant future the 48% of its citizens who voted to remain thanking the 52% who voted to leave. The EU will shrink further and become both more democratic and prosperous. The world will be a better and more prosperous place and this shall be an outcome which the financial markets will celebrate.


Mark H. Tekamp